Summary of Indian Budget 2009/10

R&D Department

Pranab Mukherjee, the Finance Minister of India, recently unveiled the interim
budget for 2009/10. However, the interim budget, which is expected to hold for only
3 months because of the impending parliamentary elections in May, was short of any
new major scheme or tax initiative. On his part, Mr. Mukherjee, argued that
constitutional propriety obliged him to stick to a bare statement of accounts, and not
announce any new schemes or tax proposals. In his budget speech, Mr. Mukherjee
announced that the fiscal deficit for 2008/09 will stand at 6 percent of GDP, which is
higher than the initial plan of 2.5%. Moreover, the Indian Ministry of Finance has
proposed fiscal deficit of 5.5% of GDP for 2009/10. Although no new tax initiative
was announced, Mukherjee said that tax rates should fall to alleviate financial
burden on average consumer in stressful times.

Indian finance minister also announced that GDP growth will be 7.1% in 08/09.
Moreover, Indian government has proposed a highly optimistic real GDP growth of 7
percent in 09/10, 8 percent in 2010/11 and 9 percent in 2011/12. Citing the current
global economic crisis as one of the major challenges facing the Indian economy,
Mukherjee advocated the need for counter-cyclical policies to sustain healthy
economic growth in coming years. “Now is the time for extraordinary measures,” he
said. However, much to the disappointment of private sector and market
participants, the Finance Minister did not unveil any new stimulus package to boost
the economy The government of India has already announced two fiscal stimulus
measures (on Dec 7, 2008 and Jan 2, 2009) to counter the fallout on Indian economy
from global economic crisis. According to the Indian government projections,
revenue deficit will be 4% of GDP in 2009/10. However, Mukherjee added that
government hopes to wipe out revenue deficit by 2010/11. The Indian government
has allocated 9.53 trillion rupees for spending and expects to collect over 6.71 trillion
rupees in tax collections in 2009/10.

1
Main points of Indian Budget:

• 2008/09 fiscal deficit seen at 6 pct of GDP, higher than initial plan of 2.5 pct.

• Projected fiscal deficit of 5.5% of GDP in 2009/10.

• GDP growth seen at 7.1 pct in 08/09. Government assumes real GDP growth
of 7 percent in 09/10, 8 percent in 2010/11 and 9 percent in 2011/12.

• Revenue deficit seen at 4 pct of GDP in 2009/10. Government hopes to wipe

out revenue deficit by 2010/11.

• Total plan spending in 2009/10 seen at 9.53 trillion rupees.

• Government expects to raise 11.2 billion rupees from stake sales in 09/10.

• Total tax receipts seen at 6.71 trillion rupees in 09/10.

• Corporate tax receipts estimated at 2.44 trillion rupees in 09/10.

• Income tax receipts seen at 1.35 trillion rupees in 09/10.

• Excise receipts in 09/10 seen at 1.11 trillion rupees.

• Custom duty receipts estimated at 1.10 trillion rupees in 09/10.

• Government assumes tax-to-GDP ratio at 11.1 percent in 09/10, while sees

the same at 14.4 percent in 2010/11 and 15 percent in 2011/12.

• 2008/09 to end with revenue deficit of 4.4 percent of GDP.

• 2008/09 revised estimate of spending 9.9 trillion rupees.

• 2008/09 revised estimate of extra non-plan spending 1.1 trillion rupees.

• 2008/09 revised estimate of tax collection 6.28 trillion rupees.